Moody's Investors Service has affirmed the Baa2 local and foreign currency long-term issuer ratings, and Prime-2 (P-2) local- and foreign-currency short-term issuer ratings of PT Astra Sedaya Finance (ASF) - Photo by the Company

Singapore (TheInsiderStories) – Moody’s Investors Service has affirmed the Baa2 local and foreign currency long-term issuer ratings, and Prime-2 (P-2) local- and foreign-currency short-term issuer ratings of PT Astra Sedaya Finance (ASF).

At the same time, Moody’s has affirmed the (P)Baa2 foreign currency senior unsecured medium-term note (MTN) program rating of the subsidiary of the financial company. The entity-level outlook on ASF is stable.

Moody’s has also withdrawn the outlook on the existing instrument ratings of the firm for its own business reasons. The Baa2 long-term ratings incorporate ASF’ Ba2 standalone assessment and the agency’ expectation that the company will receive support from its parent PT Astra International Tbk (IDX: ASII) in times of need. This support assumption leads to a three-notch rating uplift from the company’ standalone assessment.

ASF’ Ba2 standalone assessment takes into account the company’
strong franchise, underpinned by its strong relationship with AI, that
supports robust profitability and capital, manageable asset quality,
and relatively weak liquidity, characterized by its heavy reliance on
wholesale funding.

Despite the general decline in the operating environment over the past few years, Astra Sedaya Finance‘ asset quality has remained stable, assisted by prudent loan origination standards and robust internal processes to address loan delinquencies. Moody’s expects ASF’ asset quality will remain stable over the next 12-18 months, supported by the gradually recovering operating environment.

Moody’s also expects ASF’ capitalization to remain strong over the next 12-18 months, supported by its robust profitability, which is in turn underpinned by its strong domestic franchise and superior cost efficiency relative to industry peers in Indonesia.

The leasing company‘ liquidity management will remain its key credit weakness because of the nature of its business. As a finance company, ASF does not have a retail funding franchise and relies on wholesale sources for its funding needs.

ASF manages its liquidity risk by maintaining a very well-matched
book. Although the company has managed this risk well in the past, the lack of meaningful liquidity buffers still exposes it to certain
liquidity risks. Liquid assets comprised around 1 percent of its total assets as of the end of December 2018.

Moody’s expects ASF to receive support from its parent, which owned a 100 percent stake in the company as of December 2018, in times of need. Moody’s assumption of a very high level of support is driven by the strong strategic links between Astra International‘ auto business and ASF, the high level of management involvement in the company, and the reputational risk posed to ASII should ASF default, given the use of the Astra brand name.

The conglomerate company has a track record of supporting the capital needs of its key operating entities, including ASF.

The company’ ratings could be upgraded if both the company’s standalone credit profile and the sovereign rating are upgraded. A meaningful increase in ASF’ leverage level or a sharp increase in its
NPL formation rates, or both, could put downward pressure on the
company’s standalone credit profile. Moreover, a weakening of ASII’ credit profile, such that its ability to support ASF is impaired, will also lead to downward pressure on the company’s ratings.

A downgrade of the sovereign rating could also result in a downgrade of ASF’s ratings. Headquartered in Jakarta, Astra Sedaya Finance held total assets of Rp32.2 trillions (US$2.30 billion) at the end of March 2019.

US$1: Rp14,000

Written by Staff Editor, Email: theinsiderstories@gmail.com